The top-down approach to business strategy is one in which the company's strategic approach to every business issue is decided at the top of the organization and then communicated to the employees so they can implement it. The top-down strategy is particularly suited to a small business whose owners are deeply familiar with daily operations.

Top-Down and Bottom-Up

The top-down approach is the traditional model for business management. All strategic decisions are made at the highest levels of the company and then carried out by the employees as directed. For instance, the owner of a real estate agency may decide to focus on homes in a particular part of town, or the owner of a hair salon may decide to cater to a particular type of client by advertising certain hair styles more than others. A company employing a bottom-up strategy would leave these decisions to the employees or lower-level managers with direct experience of customer needs and preferences. Top-down strategies are based on the strategic vision of the company's leaders, while bottom-up strategies are based on the immediate business situation.

Advantages of Top-Down

The top-down approach has some advantages for a small-business owner. Many people are not just interested in starting a successful business but a particular type of business that matches their personal interests. For instance, an owner of a sandwich shop might not be very interested in making pizzas even if there is a higher demand for pizzas from local customers. The top-down approach allows the small-business owner to take a chance on her own ideas rather than to make all decisions based on the market. Another advantage of the top-down approach in a small business is that the owner can make strategic decisions quickly without having to consult with others or await approval.

Improvisation

Some businesses use an improvisational strategy rather than a top-down approach, but the two can be combined in a small-business context. In a larger company, the top-down approach requires the company's leaders to analyze the strategic situation, formulate a plan for the business, then implement it. The improvisational approach is based on taking incremental measures and then adjusting based on the results. For instance, a coffee-shop manager might add doughnuts to the pastry shelf on a trial basis without having to ask permission. If the doughnuts prove popular she might add a few more varieties, and if they don't, she can just stop ordering them. In a small business, the owner can often make these kinds of improvisational decisions personally, combining the advantages of the top-down and improvisational strategies.

Rule-Setting

The rule-setting strategy is another way to combine top-down and bottom-up approaches. When using this strategy, the leaders of the company set a framework of rules from the top down but allow employees as much autonomy as possible in making decisions within those rules. For instance, a bookstore owner could instruct buyers to carry more mysteries but allow them to choose the authors based on customer feedback and their own sense of the market. A bar owner could set a rule that all mixed drinks must produce a certain profit margin but then allow the bartenders to design their own specialty drinks as long as they adhered to the rule.